Doctor of Philosophy (PhD)



Document Type



Audit quality research has identified several types of auditors associated with higher quality financial statements, including Big N, specialists, and annually PCAOB inspected. A question left unanswered is whether the auditors or their clients are of higher quality. This study seeks to disentangle auditor quality from manager quality. Measuring quality as conformity with Benford’s Law, manager quality is first collected from MD&A, an unaudited portion of the 10-K. Auditor quality is then deduced as the excess conformity observed in the financial statements jointly produced by company management and the auditor. Using the derived measure of manager quality, I find that Big N and annually inspected auditors are associated with higher quality clients than non-Big N and non-annually inspected auditors, respectively. Using the derived measure of auditor quality, I find that specialist auditors have an incrementally positive effect on the likelihood that financial statements are not restated. I find that Big N and annually inspected auditors have an incrementally negative effect on abnormal accruals. Together, results suggest that higher quality managers make immaterial discretionary accruals which are constrained in the presence of Big N and annually inspected auditors. More consequentially, low quality managers, having the propensity to materially misstate financial statements, do so outside of discretionary accruals and such misstatements are prevented in the presence of specialist auditors. This is the first known study to quantify the error constrained by auditors in published 10-Ks utilizing separate measures of quality for the auditor and manager.



Committee Chair

Reichelt, Kenneth



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